862.51/2057: Telegram

The Secretary of State to the Ambassador in Germany (Schurman)

184. Your 173, October 16, 7 p.m., regarding German loans. The Department is replying as follows to American bankers consulting it regarding proposed flotation of German loans in American market, and you may so inform Gilbert:

“Since the flotation of the German external loan provided for by the Dawes plan,60 offerings of German loans in the American market have aggregated, according to the information before this Department, more than $150,000,000, and it appears that a considerable volume of additional German financing is now in contemplation. In addition to the public offerings referred to above, the Department is informed that a large amount of private bank and commercial credits has been extended to German interests during the past year.

“In these circumstances the Department believes that American bankers should examine with particular care all German financing that is brought to their attention, with a view to ascertaining whether the loan proceeds are to be used for productive and self-supporting objects that will improve, directly or indirectly, the economic condition of Germany and tend to aid that country in meeting its financial obligations at home and abroad. In this connection I feel that I should inform you that the Department is advised that the German Federal authorities themselves are not disposed to view with favor the [Page 178] indiscriminate placing of German loans in the American market, particularly when the borrowers are German municipalities and the purposes are not productive.

“Moreover it cannot be said at this time that serious complications in connection with interest and amortization payments by German borrowers may not arise from possible future action by the Agent General and the Transfer Committee. While the Department of State does not wish to be understood as passing upon the interpretation or application of the provisions of the Dawes Plan, or upon their effect, if any, upon loans such as the one now under consideration by you, it desires to point out that there is no clear indication of what the attitude of the Agent General and the Transfer Committee would be towards such loans in the event of a scarcity of available foreign exchange embarrassing their operations in effecting the transfers necessary to the execution of the Dawes Plan. It seems to the Department, therefore, that before issuing such loans you should inform yourselves whether the Transfer Committee will place any priorities or obstacles in the way of transferring funds for the payment of principal and interest and that you should make clear to your clients the full situation.

“These risks, which obviously concern the investing public, should in the opinion of the Department be cleared up by you before any action is taken. If they cannot be definitely eliminated, the Department believes that you should consider whether you do not owe a duty to your prospective clients fully to advise them of the situation.

“While the foregoing considerations involve questions of business risk, and while the Department does not in any case pass upon the merits of foreign loans as business propositions, it is unwilling, in view of the uncertainties of the situation, to allow the matter to pass without calling the foregoing considerations to your attention. In reply to your inquiry, however, I beg to state that there appear to be no questions of government policy involved which would justify the Department in offering objection to the loan in question.”

When loan is to or guaranteed by a German State reference is also made to Article 248 of the Treaty of Versailles.63

Kellogg
  1. The Reparation Commission, The Experts’ Plan for Reparation Payments (Paris, 1926), p. 2.
  2. Malloy, Treaties, 1910–1923, vol. iii, pp. 3329, 3439.